The genie is out of the bottle

Yet, I can’t help but believe that the shutdown of Napster will not do much in terms of limiting distribution of online music. People will now move to alternative services like Gnutella and Freenet. In other words, it’s time for the recording industry to face the music.

Shawn Fawning and his crew did, in the words of the judge,

create a monster

but I seriously believe that if the goal of the RIAA is to stop widespread distribution of digital music, this lawsuit is a moot point.

Back in March, I talked about Gnutella, a Napster-like client/server applications that escaped from AOL‘s vaults. Since then, Gnutella use has increased, largely due to the fact that Napster was being sued and that Gnutella has no controlling authority. Since no one is officially in charge of Gnutella, no one can be sued. And since the service can’t be sued, it’s a much tougher one to deal with as far as the recording industry is concerned.

With the shutdown of Napster, I believe that people will look for alternatives. After all, 20 million people have gotten hooked on the chance of getting free music, why would they immediately stop? And Napster, the phenomenon, will live on, as more Napster-like tools start proliferating around the net.

So what should the music industry do? Should it go out and try to shut down every single such service that pops up? I seriously doubt that such an effort would succeed. What I believe they should do is look at ways to use those tools for promotional uses and try to create a new revenue scheme for online music.

New revenue models for online music

Subscription: One of the most popular model being floated around in terms of making money from online music is the concept of subscription-based all you can eat models. Emusic is a pioneer in that space, now offering a monthly $19.99 subscription giving users access to 125,000 MP3 tracks. I believe this model is correct but I am still having a hard time with the price. The basic question is one of price. Why would people pay as much for music as they do for connectivity? I believe that this model will work only if the price is lowered to around $10 per month.

However, I’d like to offer a couple of different models.

Music as premium

: In the United States, there are two kinds of cable TV service: basic and premium. The basic set allows you to have access to a large number of advertising-supported TV stations. The premium channels are available for about $10 each and are offered without any advertising. They usually offer movies and special programming not available anywhere else. I believe that an ISP could look at a similar model. Pay $19.99 for basic access and, for an extra dollar amount, $5 to $10 maybe, get access to a music collection. There might be some incentive for particularly new music sets. Or companies could offer certain songs for free, as a promo, and give access to the full album or collection for a few more dollars. That way, the music industry gets some revenues from the distribution of digital music and everyone’s happy.

Digital Jukebox

: This is a little more complicated technically as it requires some kind of micropayment mechanism. Basically, think of it as Napster with a pay system. Songs would be available in a model similar to Napster but, for each song, a price would be attached. This price would have to be equivalent or lower than the price the user would pay for a CD, and the user would receive a bill at the end of the month for the total amount of dollars they have to remit. Access to the service would still be free but some of the songs would cost money. As a result, the music companies would see the revenues they think they are losing and post some of the promotional material for free. However, the problem with that particular approach is that it does not cover replays. As a result, a user may download a particular song for ï¿½ cent and not have to pay anything extra. A possible solution to this issue would be to take the cost of a CD, subtract the production costs, divide the remaining number by the number of tracks on the CD (let’s assume that, on average, the production costs for a CD, its case and its cover is around $3. If that CD sells for $12 and has 10 tracks on it, each track would cost 90 cents) However, in order to make this truly attractive, this would still be considered a high price. Drop it by a factor of 10 or more and it may start becoming low enough for people to consider it.

Pay-per-minute model

: This would be somewhat similar to phone service. Users would pay for minutes of airtime on a service. However, the price would have to be low enough to make it tempting for the users. Something along the lines of a portion of a cent might be reasonable.

Advertising-based model

: This would essentially have the music label distribute the music around the net but tack a front and a back bookend advertising message. They would charge advertisers a premium, as the message would be played every time a song is run. Even though I am suggesting this, I’m still dubious as to its effectiveness, as users might find a way around it.

I don’t believe that any of these are the sole answer but I am putting them out as as suggestions. If evolved properly, they could be the beginning of a new way to sell music.